Shares of Kroger rose as much as 5 percent after the Cincinnati-based operator of Ralphs, Fred Meyer, Smith's, Food 4 Less and other grocery stores also raised its full-year profit forecast and announced a $1 billion share repurchase plan.

Kroger has a sophisticated loyalty program and is known for holding down prices, even as food costs rise. That has helped the company steal share from other supermarket chains and hold its own against Wal-Mart Stores Inc (WMT.N), which has been running ads comparing its prices with other supermarket chains.

"They have earned their customers' trust. They're not at risk of losing customers when gas prices go up, when Wal-Mart starts making ads around the country comparing prices to others," said BB&T Capital Markets analyst Andrew Wolf.

Profit grew 1.6 percent to $439.4 million, or 78 cents a share, for the fiscal first quarter ended May 19. That was above Wall Street forecasts of 72 cents a share.

Sales, including fuel, grew 5.8 percent to $29.1 billion.

Kroger's identical-supermarket sales, excluding fuel, were up 4.2 percent. While the gain was more modest than the 4.9 percent increase in the preceding quarter, it was roughly in line with the 4 percent average gain analysts had expected, according to Thomson Reuters.

Identical supermarket sales are a closely watched measure of sales at stores open without expansion or relocation for five full quarters.

The rate of food inflation decreased faster than the company expected during the quarter and was partially offset by falling costs for fresh produce, executives said on a conference call with analysts.

Food costs, in terms of what Kroger pays its suppliers, have been falling. Analysts have said that across the industry, grocers are not fully passing the lower costs through to shoppers, and that that is helping to insulate profit.

During the depths of the recession, grocers were immediately passing lower food costs through to consumers in an effort to bring more shoppers into stores - a move that battered profit across the industry.

Kroger has been picking up patients of pharmacy benefits manager Express Scripts Inc (ESRX.O), since Walgreen Co WAG.N stopped filling their prescriptions at the beginning of the year.

Kroger raised its full-year profit forecast to $2.33 to $2.40 a share compared with an earlier forecast $2.28 to $2.38 a share, and above analysts' projections for $2.32 per share, according to Thomson Reuters I/B/E/S.

It expects to benefit from a 53rd week in the fiscal year, an expected lower inventory charge, aggressive stock repurchases and pension plan consolidation.

Kroger's positive earnings report also helped stock prices of its competitors on Thursday. Shares of Safeway were up 2 percent at $18.01, while Supervalu stock rose 4.9 percent to $4.48. Shares of Wal-Mart Stores Inc, which sells more groceries than any other U.S. retailer, were up 0.7 percent at $67.55.

Kroger's shares were up 4.5 percent at $22.25 in late morning, off an earlier high at $22.36.

Reporting by Phil Wahba in New York and Lisa Baertlein in Los Angeles Editing by Bernadette Baum and Matthew Lewis